Which payment type is best if you are trying to stick to a budget? This is one question many people ask. Even with the best budgeting strategies, it’s still challenging to stick to a budget. What’s more, modern-day shopping habits like online shopping make it easy to overspend.
Research shows the more transparent a payment method is, the more likely you’re likely to stick to a budget. A prime example is using banknotes out of your wallet to purchase a product or service. When you pay for the service in cash, you can see notes changing hands hence less likely to overspend.
Conversely, digital payment options create a physical and temporal distance between the act of parting with money and paying for the service. It is this reduced transparency that encourages one to overspend. To understand which payment type is best if you are trying to stick to a budget, we look at the different payment options.
It is the oldest and the cheapest form of payment as it doesn’t incur any processing fee. Unlike credit cards which create the illusion of magic money, cash forces you to pull out cash from the wallet with each transaction.
As such, you can only spend what you have. According to the research referenced above, the researchers add that cash heightens the discomfort experienced with parting with money. Therefore, a consumer is likely to think about the cost of an item before purchase. This process diminishes the pleasure derived from buying the product.
The result is that the buyer holds off buying the product or purchases it at a later date (when he has extra cash). When looking for which payment type is best if you are trying to stick to a budget cash should be your first alternative if you overspend.
Despite this payment method being replaced by online banking, some people still write a few checks per year. However, if looking for which payment is best if trying to stick to a budget, a check isn’t an ideal option. It’s tempting to make large or frequent purchases via checks.
Also, checks pose a risk for the consumer and the business. First, there’s the risk of exposing sensitive information, including your account number and address. If the check is misplaced, you may fall prey to identity theft.
3. Credit and Debit Cards
Budgeting using credit cards has been met with much criticism due to the high-interest rates associated with this mode of payment. A credit card is only a temporary loan from the bank. It allows you to spend money upfront on the condition that you pay it back at the end of the month.
The problem is it encourages people to overspend, leading to the accumulation of costs in the form of high-interest rates. On the flipside, you can use a credit card to monitor your expenses. It would even help if you had separate cards for different expenses, e.g., groceries, clothing, entertainment, and more, as long as you can control your spending habits.
Conversely, a debit card makes a better payment method when trying to stick to a budget. This is because a debit card withdraws money from your checking account. Thus, you can only spend what you have.
However, you need to be cautious not to accumulate overdraft fees which happens when you spend more than what is in your checking account. It’s dangerous because you won’t use the card until you have deposited additional funds into the account.
4. Mobile Payments
The ever-increasing dependence on smartphones has led to the development of tools to help consumers pay conveniently using phones. Mobile wallets have been developed as a result, to provide a digitized form of using your credit and debit cards. The wallet stores payment information on a mobile device allowing you to pay for products and services.
The ease of making payments through mobile wallets may make it challenging to stick to a budget. Keep in mind; interest accrues if the balance isn’t paid at the end of the month. If using this payment option, you want a budgeting app to keep an eye on your spending habits.
5. Electronic Bank Transfers
Electronic bank transfers make it easy to pay monthly bills. You only need to set up an automatic billing feature, and your bank will pay the bills automatically. This payment method is suitable for people making recurring payments every month like debt payments or internet bills. It’s important to keep tabs on your account balance to avoid paying fees for returned payments.
Most payment methods may not be effective at helping you stick to a budget. This is because budgeting requires keeping track of each dollar earned and spent. Since tracking is exhausting, you may need to deploy the help of tools like a budgeting app. The apps help you set up a budget and track progress instead of evaluating your spending manually.
Thousands of apps have been developed so far and are tailored to varying user needs. Some apps come off passive, while others help you monitor every dollar. Here’s a roundup of some of them:
1. You Need a Budget
The app is ideal for detailed and committed budgeters. It’s based on a zero budgeting system, a technique that requires you to allocate your income to expenses, debt payments, and savings. The premise is to ensure you only spend what you have and your income minus expenditure is equal to zero at the end of the month.
And if you don’t want to link your bank accounts to the app, you can add transactions manually. The feature is helpful for people who don’t want to allow third-party apps to access their accounts.
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You Need a Budget doesn’t just help you track your money; it offers financial management tips. It has free daily workshops on budgeting, saving, debt management, and a library of educational resources.
The app comes in handy for those who indulge in impulse buying as it helps users track spending and plan for purchases. It also uses a zero-based budgeting system. This means if you pay for all your expenses and have a balance of $100, you’re not done with the budget.
You must allocate that balance to debt, savings, mortgage, or growing wealth. Otherwise, you lose the chance to make the app work for you.
The app has a free version that requires users to enter the transactions manually each time they spend money. With the upgraded version, you can connect your bank accounts and access other features.
This app is ideal for basic household budgeting needs. It uses an envelope system that separates the monthly income into different spending categories. Goodbudget also allows multiple devices to access the account, making it easy for you to share the budget with family members.
As for the bank balances, you must add them manually because the app doesn’t allow syncing of bank accounts. After entering the balances, assign the money required toward different spending categories (envelopes).
Its free version allows you to use one account, two devices, and few categories. But if you upgrade to the Plus version, you enjoy unlimited categories and can sync up to five gadgets. Also, the app provides in-app reports to help you modify the budget.
Mint isn’t just a budgeting app but a credit monitoring app too. It allows you to sync your bank accounts and monitor spending on each every day. The app organizes your spending by providing the totals by category to identify expenses you need to cut back on.
Mint also provides monthly bill tracking as well as reminders to avoid late fees. And if you have some investments or savings, you can use the app to follow them. For the savings category, you can save for multiple goals, including a timeline and the cost.
Which Payment is Best if Trying to Stick to a Budget?
Limiting the amount you spend every month can be tedious and frustrating, but the benefits outweigh the efforts involved. Which payment is best if trying to stick to a budget greatly depends on your spending habits.
If you’re the kind that indulges in a lot of impulse buying or need reinforcements to make sure you dont overspend, stick to cash. You can use the 50/30/20 rule, which allocates:
- 50% to household expenses
- 30% on non-essentials
- 20% to savings
Alternatively, use the envelope method. It recommends paying for bills first, then listing other expenses and dividing the money accordingly. However, sticking with large sums of cash can be impractical.
Credit and debit cards make more convenient payment methods, but use a budgeting app if you can’t exercise restraint. The bottom line with all budgeting is understanding your spending habits to cut back and re-allocate money to areas that need it. It’s also wise to discuss your poor spending habits with a bank adviser or family member. Most spenders are in denial and believe they’re in control.